Happy Couple: Volkswagen Finally Swallows Porsche

They have been together for a while. Behemoth Volkswagen and tiny, but bigger than life Porsche shared technologies and booths at auto shows, Volkswagen generals are in key positions at Porsche. Fitting the German Zeitgeist, they lived together without being formally married. This will be rectified in a few weeks.

On August 1, 2012, the loose knot will be formally tied. Porsche SE will receive around €4.46 billion as consideration for contributing the 50.1 percent of Porsche AG not yet owned by Volkswagen. With that move, Porsche will formally become an integral part of the Volkswagen Group.

What stood in the way of a faster marriage were investment funds that brought suit against the Porsche SE holding company. The solution was to instead buy the sports car business that is handled by Porsche AG. Few outsiders understand the web of Porsche companies and acronyms anyway. However, that brought another problem: Taxes.

Buying Porsche AG normally would be a taxable event to the tune of approximately $2 billion. Volkswagen did not want to pay this kind of money. CFO Hans Dieter Pötsch’s accountants and lawyers went digging and found a passage in Germany’s Umwandlungssteuergesetz (Reorganization Tax Act) and the Umwandlungssteuererlass (Taxation of Reorganizations Circular). Porsche SE received one Volkswagen ordinary share in addition to the €4.46 billion, and voila, the matter was a tax-free reorganization.

According to a Volkswagen statement, “the consolidation of Porsche’s highly profitable automotive business, will have a positive impact on Volkswagen’s consolidated profit.” In this year alone, the company predicts a “clearly positive noncash effect of more than €9 billion in the Volkswagen Group’s financial result.”

Also, Volkswagen can count Porsche’s roughly 100,000 cars sold annually as its. It may not be much, but in the race to Volkswagen’s world domination, planned for 2018, every car counts.